Unit 2 Microeconomics Key Terms and
Concepts
Quantity Demanded - answersThe actual amount of a good or service consumers are
willing to buy at some specific price.
Demand - answersConsumer willingness and ability to buy products
Substitution Effect - answersConsumers ability to substitute other products for the focal
brand and increase price elasticity of demand for the focal brand
Income Effect - answersA change in the quantity demanded of a product that results
from the change in real income (purchasing power) caused by a change in the product's
price.
Normal Good - answersA good for which, other things equal, an increase in income
leads to an increase in demand
Inferior Good - answersA good for which, other things equal, an increase in income
leads to a decrease in demand
Complements - answersTwo goods for which an increase in the price of one leads to a
decrease in the demand for the other
Substitutes - answersGoods and services that can be used for the same purpose.
Determinants of Demand - answersAnything other than price of the current item that
influences consumer buying decisions, including income, tastes and preferences, price
, of related items (substitutes and complements), number of consumers in the market,
and expected future price.
Determinants of Supply - answersAnything other than price of the current item that
influences production decisions, including cost of raw materials, cost of labor, level of
technology used to produce, number of producers in the market, price of related
products, and expected future price.
Elasticity - answersA measure of how much one economic variable responds to
changes in another economic variable.
Revenue - answersAn increase in owner's equity resulting from the operation of a
business
Equilibrium - answersA situation in which the market price has reached the level at
which quantity supplied equals quantity demanded
Price Ceiling - answersA legal maximum on the price at which a good can be sold
Price Floor - answersA legal minimum on the price at which a good can be sold
Minimum Wage - answersA minimum price that an employer can pay a worker for an
hour of labor
Surplus - answersA situation in which quantity supplied is greater than quantity
demanded
Shortage - answersA situation in which quantity demanded is greater than quantity
supplied
Diminishing Marginal Return - answersDecreasing satisfaction or usefulness as
additional units of a product are acquired
Subsidy - answersA government payment that supports a business or market
Excise - answersA tax on the manufacture, sale, or consumption of certain products
Regulation - answersEfforts by government to alter the free operation of the market to
achieve social goals such as protecting workers and the environment.
Marginal Product of Labor - answersIncrease in the amount of output from an additional
unit of labor
Fixed Cost - answersCosts required to produce a product or service that are not
dependent on the quantity of services provided (e.g., rent for office space)
Concepts
Quantity Demanded - answersThe actual amount of a good or service consumers are
willing to buy at some specific price.
Demand - answersConsumer willingness and ability to buy products
Substitution Effect - answersConsumers ability to substitute other products for the focal
brand and increase price elasticity of demand for the focal brand
Income Effect - answersA change in the quantity demanded of a product that results
from the change in real income (purchasing power) caused by a change in the product's
price.
Normal Good - answersA good for which, other things equal, an increase in income
leads to an increase in demand
Inferior Good - answersA good for which, other things equal, an increase in income
leads to a decrease in demand
Complements - answersTwo goods for which an increase in the price of one leads to a
decrease in the demand for the other
Substitutes - answersGoods and services that can be used for the same purpose.
Determinants of Demand - answersAnything other than price of the current item that
influences consumer buying decisions, including income, tastes and preferences, price
, of related items (substitutes and complements), number of consumers in the market,
and expected future price.
Determinants of Supply - answersAnything other than price of the current item that
influences production decisions, including cost of raw materials, cost of labor, level of
technology used to produce, number of producers in the market, price of related
products, and expected future price.
Elasticity - answersA measure of how much one economic variable responds to
changes in another economic variable.
Revenue - answersAn increase in owner's equity resulting from the operation of a
business
Equilibrium - answersA situation in which the market price has reached the level at
which quantity supplied equals quantity demanded
Price Ceiling - answersA legal maximum on the price at which a good can be sold
Price Floor - answersA legal minimum on the price at which a good can be sold
Minimum Wage - answersA minimum price that an employer can pay a worker for an
hour of labor
Surplus - answersA situation in which quantity supplied is greater than quantity
demanded
Shortage - answersA situation in which quantity demanded is greater than quantity
supplied
Diminishing Marginal Return - answersDecreasing satisfaction or usefulness as
additional units of a product are acquired
Subsidy - answersA government payment that supports a business or market
Excise - answersA tax on the manufacture, sale, or consumption of certain products
Regulation - answersEfforts by government to alter the free operation of the market to
achieve social goals such as protecting workers and the environment.
Marginal Product of Labor - answersIncrease in the amount of output from an additional
unit of labor
Fixed Cost - answersCosts required to produce a product or service that are not
dependent on the quantity of services provided (e.g., rent for office space)
